We all knew this day would come, the demise of our bull market. However, did any of us ever imagine that it would take a virus to kill the euphoria? Additionally, did we ever imagine that the decline would happen so swiftly? This rapid drop underscores the notion that the stock market takes an escalator up and an elevator down. Nevertheless, Mr. Market humbled us again. Before we move on to the gist of this narrative, I suggest that it is only proper for us to bow our heads in respect and awe, for the longest bull-market run in history. Okay, enough of the condolences, now what do we do? We are in a bear market (20% drop from the peak)! For starters, let’s take a stroll down memory lane to visit other bear markets to help us put the current one in some perspective. Thanks to a remarkably insightful and easy to understand March 17, 2020 column in the USA Today, I was able to get most of my questions answered, so that I could share with you. The article cited a research piece from S&P Dow Jones Indices. Below are some of the important points about how long it took the S&P 500 to finally reach bottom from its previous peak:
The shortest bear market was in 1990 when the S&P retreated 19.9% from its high. It only took us 2.9 months to go from peak to trough.
The most infamous bear market was in 1929 when the S&P 500 declined a mind-blowing 86.2% before it bottom 32.8 months later.
The longest bear market was in 1937 and lasted 61.8 months. Yikes, that is over five years to finally hit bottom.
The most recent bear market was in 2007 when the S&P 500 dropped 56.8% from its high and it lasted 17 months from peak to trough.
The average bear market lasts 21 months.
Bear markets have fallen, on average, about 40%. As of this writing, the S&P 500 is down 12%. Regrettably, sometimes it takes a long time to recover back to the highs. For example, no climb matches that of the Great Depression, as it took about 25 years to get back to the top. Thank goodness that the return to the peak has been much shorter in other bear markets! For example, it took just six months and 28 days for the 1990 bear market to recover its loses. It took eight years for S&P 500 prices to recover after the dot-com bubble burst in 2000, which was followed by the crash of 2008, which took about six years for prices to get back to its earlier highs. On average, it takes about 3.3 years for investors to get back to where they started.
According to Yahoo Finance, another remarkable feat of the current bear market is that it goes into the history books as the fastest bear market ever. In other words, it took us just 16 trading days to drop 20% while in 1929, it took 35 days and in 1987, it was 38 days. Obviously, this downturn has been swift and sudden, but I suggest that this might be good news akin to pulling off a Band-Aid quickly vs. slowly. Perhaps stated more simply, let’s get the pain over rapidly, so we can begin working our way higher… now! For your information, The Dow Jones Industrial Average reached a record high of 29,551 points on February 12. I know that a Dow of 30,000 seems so far away, but I have a good hunch that we will get there faster than maybe many suspect. In fact, my crystal ball is telling me that this recovery will beat the fastest upturn that I mentioned with the 1990 bear market recovering in six months and 28 days! In closing, for those of you that stayed the course during this gut-wrenching retreat in stocks, I applaud you, as I know it was and still isn’t easy to keep you finger off the trigger. For the few that bailed, I urge you not to wait until the waters are calm before getting back in, as the market normally hits a bottom well before the bad news stops!
Harry Pappas Jr. CFP®
Master of Science Degree Personal Financial Planning
Certified Estate & Trust Specialist ™
Certified Divorce Financial Analyst™
Pappas Wealth Management Group of Wells Fargo Advisors
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